Australia current account deficit narrows significantly, following surge in commodity prices

Australia’s current account deficit narrowed significantly, from a revised AUD10.2 billion to AUD3.9 billion, the smallest deficit since 2001. The surge in commodity prices, particularly for iron ore and coal, was largely behind the improvement in the deficit.

The goods and services balance swung into surplus in the December quarter of AUD5.5 billion, after posting an AUD2.8 billion deficit in the September quarter. Export volumes rose 2.2 percent in the December quarter, and have risen for four consecutive quarters. Increased production capacity in resources, particularly in LNG, is driving the strong growth in export volumes.

Import volumes rose 1.4 percent in the December quarter, the third consecutive quarterly increase. On a year ago, imports grew at 3.3 percent. It was a moderate pace, but the strongest in nearly two years. The terms of trade rose 9.1 percent in the December quarter, the biggest gain in 6½ years. The recent lift in commodity prices provides a significant income boost.

Net exports are set to contribute 0.2 percentage points to GDP growth in the December quarter. The range of data, in particular, the strong growth in company profits, would suggest some upside risk to our GDP growth forecast of 0.8 percent in the December quarter and 2.0 percent in the year. This result would confirm that the contraction in the September quarter would be a one-off.